SUMMARY OF THE NCLT, MUMBAI BENCH-II JUDGMENT IN THE MATTER OF INDIA RESURGENCE ARC PVT. LTD. VS. INDIAN STEEL CORPORATION LIMITED DATED 06.05.2020
The obligation of the corporate debtor to repay the loan facilities taken from the SBI including erstwhile associated banks of SBI and other consortium banks, arose out of the documents executed on 09.09.2008 (Term Loan Facility Agreement) and 22.06.2013 (Working Capital Consortium Agreement).
Indian Steel Corporation Ltd. (“the corporate debtor”) owed SBI an amount of Rs 1,829 crores, while the bank sold its exposure to India Resurgence for Rs 362 crores. The public sector bank took a 61% haircut on the asset. Hence, the India Resurgence ARC Pvt. Ltd. (“the financial creditor”) has acquired the debt by way of an assignment agreement in May 2019 from State Bank of India and stepped into their shoes with all attendant, right, title and interest.
India Resurgence ARC Private Limited (“a financial creditor”) has filed a company petition [CP (IB) No. 3846/MB-II/2019] under section 7 of the Insolvency and Bankruptcy Code 2016 (“IBCode2016”), against Indian Steel Corporation Limited (“the corporate debtor”) before NCLT, Mumbai Bench, claiming that the corporate debtor has failed to make payment of a sum of ₹1487.59 crore as on 30.09.2019.
During the pendency of the main petition, the corporate debtor has filed an Interlocutory Application (IA) bearing IA No.396/2020 challenging the maintainability of the main petition bearing CP (IB) No.3846/2019. The contentions raised in the said IA are in pari materia with the reply of the Corporate Debtor in the main company petition (CP). These are taken up together for disposal.
The arguments from the side of financial creditors falls over the maintainability of the petition, scope of enquiry u.s. 7 of the Code, the period of limitation, on the breach of inter se agreements between the parties, on RBI directions, on petition being the abuse of the process of law, on incomplete petition, insufficient stamp duties and other technical defects which the corporate debtor has raised in their reply. Other arguments from the side of the corporate debtor includes that the date of default cannot be common for all accounts as the SBBJ did not restructure its accounts and the date of default is henceforth not declared.
Also w.r.t. the Memorandum of Creation of Mortgage dated 02.02.2017, it is argued that it cannot be considered as the principle document since it came into being only on 02.02.2017, whereas the obligation to repay arose out of the documents executed on 09.09.2008 (Term Loan Facility Agreement) and 22.06.2013 (Working Capital Consortium Agreement).
Further that the mortgage was executed by way of additional security to the principal documents, not the other way round. Therefore, the mortgage deed by itself does not make the petitioner fall within the definition of the term, “financial creditor.”
Regarding the status of India Resurgence ARC Private Limited as a “financial creditor”, a judgement of the Hon’ble Supreme Court of India was discussed i.e. “Anuj Jain (IRP of Jaypee Infratech Limited) v Axis Bank Limited)”. Upon a careful reading of the judgment in its entirety and placing it in the factual matrix of that case, it is clear that it applies to a situation where a corporate debtor has given its property in mortgage to secure the debts of a third party. Such is not the case in the present petition. Therefore, the ratio decidendi of that judgment will not apply to the facts of the present case.
However, it is noteworthy to observe that :–
(a) There is no declaration of default in respect of the accounts maintained by the erstwhile State Bank of Bikaner & Jaipur, which got merged with State Bank of India;
(b) There is no document placed on record acknowledging the liability in the three-year period commencing from 31.12.2013 or 01.01.2014, whichever date is taken to be the date of default, which would have the effect of extending the period of limitation in terms of section 18 of the Limitation Act, 1963;
(c) The Balance Sheets placed on record in the rejoinder are for the period from 2017-18 onwards. This is past the three-year period of limitation. This cannot be taken to be acknowledgement within the meaning of section 18 of the Limitation Act, 1963. No reasons have been adduced as to why the Financial Creditor was not in a position to place the Balance Sheets of the Corporate Debtor for the previous years, either as part of the Petition or as part of the Rejoinder.
For all the reasons and the observation of the NCLT, Mumbai Bench, the main petition bearing CP (IB) No.3846/2019 fails and therefore, did not admit the same as prayed for. As a corollary, the IA by the corporate debtor i.e. IA No.396/2020 succeeds and is allowed.